Mortgage rejections push many young first-time buyers to rent

Vichai Wiratkapan, inspector general of the Government Housing Bank and acting director of the Real Estate Information Center (REIC), stated that a market survey of residential properties priced below 3 million baht found that the figures for 2023 showed a significant 10% decrease in the number of property rights transfers compared to the preceding year. This decline is considered substantial.

“Purchases of these properties experienced a growth rate of more than 10% post-Covid-19, as people began to re-enter the housing market in 2022. However, in 2023, issues arose with a reduction in individual incomes and an economic downturn, followed by loan rejections, resulting in a significant decrease in the number of property transfers," Vichai said.

While the residential market in the 3 to 5 million baht price bracket has continued to grow, it is nonetheless experiencing a marginal decline of 2%, which is not significantly impactful due to its relatively low volume. Meanwhile, the market for properties priced between 7.5-10 million baht and those above 10 million baht still shows growth rates.

This reflects that the main problems are in the low price range segment and are due to what developers are calling the “reject rate”. This compels them to resell their properties, often going through the process 2-3 times.

Vichai adds that the difficulty for new-generation individuals who are just starting their careers to afford a home is due to various factors. While the overall outlook may seem challenging, it does not necessarily mean that young individuals will refrain from purchasing homes or condominiums at some stage in the future. The key considerations include their income levels and spending behaviours.

In this context, the overall situation for the new-generation group, who typically start their careers with an average monthly income of 15,000-25,000 baht, presents challenges in affording homes. Entering into debt may limit their ability to own a home, as the prices of residential properties consistently rise due to increasing land prices and construction costs. This, combined with a rising cost of living, makes it increasingly difficult for this group to afford homes. The popularity of branded consumer goods contributes to an increase in debt, further complicating the ability to purchase a home.

These trends will play a significant role in contracting the overall real estate market in 2024, especially as in terms of unit transfers, this below 3-million baht segment accounts for 66%, while in terms of value, it represents 30%.

The result is that real estate developers are inclined to focus on developing projects that cater to the middle to upper-income consumer segment, which demonstrates greater readiness to make home purchases.

Tritecha Tangmatitham, chairman and managing director of Suphalai Public Company, believes that the trend of loan rejection issues among customers will decrease this year but points out that developing residential properties priced below 3 million baht in Bangkok is challenging due to the increasing costs of land and construction, which are pushing prices to more than 100,000 baht per square metre, thus prompting the younger generation to rent rather than buy as a more viable and cost-effective housing solution.

Kessara Thanyalakpark, managing director of Sena Development Public Company, said that even though the situation is improving, economic conditions remain uncertain due to various factors both domestically and internationally.

The company has found a solution for customers who wish to purchase residential properties but lack financial flexibility, offering a lease-to-own financing service. This allows customers to immediately move into the company's houses or condominiums. Subsequently, they can gradually repay the loan, with deductions from the principal amount until the point where customers become eligible to obtain a home loan from a bank.